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Central Bank Collateral Frameworks: Principles and Policies

Author

Listed:
  • Rebecca McCaughrin
  • Mr. Simon T Gray
  • Alexandre Chailloux

Abstract

Central bank collateral policies came under pressure with the 2007-08 financial market crisis. This paper addresses the rationale for and constraints in taking collateral, and recent practices in different collateral frameworks. It then considers the risks of adverse selection. The paper concludes that (i) the collateral framework needs to include market incentives; (ii) central banks face trade-offs between risk and counterparty access; (iii) emerging markets may see pressure on collateral policies in coming years; and (iv) further work is required to develop pricing incentives and the structure of central bank facilities, both during normal times and in periods of market stress.

Suggested Citation

  • Rebecca McCaughrin & Mr. Simon T Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks: Principles and Policies," IMF Working Papers 2008/222, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/222
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    References listed on IDEAS

    as
    1. Bindseil, Ulrich & Papadia, Francesco, 2006. "Credit risk mitigation in central bank operations and its effects on financial markets: the case of the Eurosystem," Occasional Paper Series 49, European Central Bank.
    2. Åke Lönnberg & Mr. Peter Stella, 2008. "Issues in Central Bank Finance and Independence," IMF Working Papers 2008/037, International Monetary Fund.
    3. Arturo Estrella, 2002. "Securitization and the efficacy of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 243-255.
    4. Ulrich Bindseil & Francesco Papadia, 2006. "Credit risk mitigation in central bank operations and its effects on financial markets - the case of the Eurosystem," Occasional Paper Series 49, European Central Bank.
    5. Bank of Japan, 2003. "The Bank of Japan's Eligible Collateral Framework and Recently Accepted Collateral," Bank of Japan Research Papers 2003-05-12, Bank of Japan.
    6. Birgit Sauerzopf, 2007. "Credit Claims as Eligible Collateral for Eurosystem Credit Operations," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 80-92.
    Full references (including those not matched with items on IDEAS)

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